At Eduflix: 4 Stories And Many Questions

4 Stories And Many Questions.

[Reproduced in entirety]

Anil is a 16 years old kid living in Kanakpura, a town 50 Kms away from Bangalore. Anil’s dad is a teacher and like many parents in India, spends a considerable amount of his income on his kids’ education. Anil wants to become an Engineer and wants to appear for IIT JEE two years from now. However, because of his dad’s financial condition, he cannot afford to get out of his home town and take admission in better schools in the nearby metro. He attends local tuition classes but he also realizes that the one he attends is very sub-standard to get him through JEE. Anil shares his room with his younger brother who is in 8th standard.

Bhavani studies in Std 12th in one of the best schools of Dehradun. Bhavani loves visiting Facebook and chats with her friends everyday. Shalini and Jaya are her best friends and they spend most of their evenings together studying or playing scrabble. Bhavani also loves dancing and wants to learn Bharatanatyam. However, non-availability of teacher in her locality has hampered her progress in learning. Later in life, Bhavani wants to become a doctor to fulfill her grandmother’s wish.

Pawan was not able to get into a good Engineering college because of his lower rank in engineering entrance test. Not that he is not smart, he was just unlucky to be not well while attempting the engineering test. He loves programming on his new computer. However, he finds it extremely difficult to proceed when he gets stuck on some problems. His teachers are fresh graduates from tier-2 colleges who have become teachers because they were not able to land a good corporate job. Further, his friends are not equally passionate about programming like he is. One day, Pawan wants to start his own company to build software products targeting Indian market.

Aadithya is in sixth standard and clueless about what he wants to do in his life. He spends endless hours on internet browsing through youtube videos and articles about dinosaurs, new cars and gadgets. Sometimes he just stares blank on the screen thinking about which website shall he visit next. He is extremely smart and finishes his homework quickly before starting on his internet adventures. Sometimes he just gets lost in myriad of low quality content available online.

These stories are very common across hundreds of cities in India. Talented students out of their luck to get a decent platform to enable them to meet their true potential. Can we provide this platform to these students? A platform that can team up with kids’ ability and provide them with the much needed headstart in their lives? These are the kind of questions we, the Team Eduflix, keep asking and brainstormiing when we work on Eduflix. Can Eduflix become companion of Pawan and solve his problems when he gets stuck? Can Eduflix teach Bharatanatyam to Bhavani? Can Eduflix help Aadithya find what he wants and more importantly what is more appropriate for him? Can Eduflix provide the best learning experience to millions of kids irrespective of where they live, at an affordable rate? Only time will tell the answers. However, at this moment, we are trying our best to meet all these expectations.

Learnings from Mr. Salman Khan

For people who don’t know the other Khan, (I am not talking about the well-known actor Salman Khan, not that the actor Salman Khan has nothing to offer to learn), here I am writing about Salman Khan, also known as Sal Khan, from Khan Academy. Sal Khan started making videos for his cousins who were finding it difficult to understand Maths. He was working as a hedge fund manager then. One day he quit his job and started spending full-time developing these educational videos and sharing on YouTube. Today he has more than 2000 videos available on his site. That was Mr. Khan’s introduction in short. If you want to know more about his, please visit Khan Academy’s website. Khan Academy has now become very popular and Mr. Khan is enjoying immense brand equity worldwide.

Videos provide an ultimate learning experience to students, sometimes even better than the classrooms. Students can go through videos at their own pace – rewind, forward, go as many times as they want through a lesson. Mr. Khan has also come up with a novel learning management system where students can evaluate themselves after watching the videos. The key objective in his LMS (learning management system) is that students should keep trying on one concept until they learn it completely before moving on to another concept. In our conventional education system, students progress through their classes if they secure, say 70% marks. However, do we provide driving license if one knows how to drive a car only 70%?  Mr. Khan has also come up with concept of badges to provide continuous feedback to students.

The great work done by Mr. Khan is truly admirable. However, apart from learning Maths and many other subjects from his videos, there are some lessons of life which can be learnt from Mr. Khan’s life. Here they are –

Start small – Imagine making more than 2000 videos one at a time covering diverse set of subjects. Anybody would get overwhelmed by such a thought. “Take the first step in faith. You don’t have to see the whole staircase, just take the first step” said Martin Luther King and that is what Mr. Khan started with. I am not sure if he ever thought about creating such a vast library of content.

The smallest deed is better than the greatest intention (said John Burroughs)- What was Mr. Khan’s intention in the beginning? To help his cousins struggling with maths. Indeed a good intention. Was it to change the world using videos? I doubt. But then he kept working and sharing his work. His smaller deeds have turned big now.

Content is king – Instead of focusing on fancy softwares and tools, Mr. Khan focussed on creating easy-to-understand content. I have met students who find it easier to learn from his videos than what they learn face to face from their teachers. He has used no fancy animations in his videos but has delivered his lessons just like a normal teacher goes about in a classroom.

There are many more. Watch this video –

8 Reasons Why Technology Will Play A Key Role In Indian Education

Indian Education sector is considered very hot today with many entrepreneurs betting their careers and VCs betting their money on it. Hundreds of companies have popped up in past few years; some of them do have some solid value proposition while the rest are just another education startups. Whether all this sudden interest in education is just hype or something real, time will tell us. My take – there is definitely lot of froth now which shall settle down soon, however there is a lot of work to be done considering the fact that the most precious resource that we have today is our people. Being a technology guy, there is always a bias for finding solution to every problem with technology (To a man with hammer, every problem looks like a nail, says Charlie Munger). Here are few points that I think make it necessary for technology to play a role in Indian Education.

1. Shortage of (good) teachers in India – There are around 400 million kids in India. Assuming a very conservative teacher-student ratio of 1:40, we should have 10 million teachers today. By year 2015, we will need more that 2 million new teachers according to a report by Unesco Institute of Statistics. Everybody is aware about the quality of teachers we have today. Teacher training is almost non-existent in India today. Where is this next lot of teachers going to come from? There are multiple ways in which technology is answering these questions. For instance, there are e-learning companies that are developing educational content so that students become less dependent on blackboard teaching by their teachers. Students can use these services as complementary to what is taught in classrooms and teachers can use them as teaching aids. There are ICT companies deploying computers and internet in schools so that students can learn from them.

2. Geographical Barriers – India is land of mountains, rivers and plains. But India is also a country without roads and electricity. My native village is yet to see a road or a bus reaching to it even today. There are many such villages in India where teachers fear to tread and students find it hard to travel outside for studies. But there are mobiles everywhere. There are TVs and DTH connections. All because technology has enabled us to jump directly from being road-less to being mobile-ful. With an appropriate business model, best of the teachers can reach to these places virtually using mobiles, TVs and, as we talk, computers.

3. Shortage of Schools – We are limited by our school infrastructure. And we are limited by funds to set up thousands of quality institutions. Although we have IITs and IIMs, there are many schools in India without toilets and there are many schools running till 8th std with just two classrooms and three teachers. There are high quality private schools coming up but they are not accessible to everyone. Above that, even education quality is doubtful in many of these schools. From government side, we have around 31K crores for education in this year’s budget. Is this enough? That is not even one thousand rupees per student! Over that, corruption will eat away most of it. Technology can help us in delivering quality education at very affordable rates. Worldwide, broadband and mobile rates are going down because of technology and business innovations. Very soon, all engineering grads would be able to learn from IIT professors and all kids can take tuitions from Khan Academy.

4. We need to bridge the digital divide – If I compare an 8th std student from Bangalore and one from say, Hosur or Jabalpur, there would be a big difference. Primarily because of the ecosystem they grow up in. Can we create the same ecosystem in Tier 2, Tier 3 or Tier 4 cities without using the technology?

5. Number of career options will explode – When I was in school, one wanted to become an IAS officer, a doctor, an engineer or a pilot. Accordingly, we would choose our career options. Today, we have wedding planners, hair stylists, fiction writers, furniture designers and many more. This list is going to get bigger as our economy expands. Internet has enabled kids sitting in Dehradun learn Bharatanatyam by watching videos on Youtube. Supporting education for so many career options would be impossible without using technology. We are already seeing democratization of education and technology is playing a key role in connecting the students and teachers!

6. There is a lot of Innovation happening in the technology – Some of our best talent is moving towards technology. My belief is that when good guys work together, something good comes out. In past couple of years we have seen many entrepreneurs opening education companies and many smart software geeks coding for indian education. Some thing good is going to come out for sure.

7. Complexity of Indian system – With 15 national languages, 10s of state boards, 100s of competitive exams and millions of students, the current system is looking too complex to be managed without using technology. We are moving towards a knowledge economy. And we are moving at a very fast pace. Our course content need to reflect this movement – what is relevant today might not be relevant tomorrow. We need to continuously adapt to this change which will become increasingly difficult with our current education system.

8. We are nowhere right now – We need fresh investments to support our education system. And with our limited funds, it is better to go directly wireless than laying out wires, i.e., go for high ROE technology-supported investments instead of investing in Brick-and-Mortar models.

Dolby Labs – A Real IP Company

Dolby has similar clout as a brand in Audio technologies as Intel has in PC market. For namesake, there are multiple technology licensing companies (perhaps numbering in thousands), but there are only few who have brand recall like that of Dolby. Other than creating breakthrough technologies, Dolby also makes money and enough of it. For starters, it made more than $700 million dollars for year ending Sept, 2009 with around $250 million profits. That is more than what ARM makes being the number one IP company.

Dolby Labs develops and markets products and technologies related to audio entertainment and are standard in a wide range of entertainment platforms. Dolby’s compression technologies, noise reduction technologies and surround sound are used in DVD players, PC DVD playback software, DTVs, STBs, PMPs, gaming systems, a/v receivers etc. Primarily, it makes money by licensing its technologies to consumer electronics manufacturers and media software vendors. This makes up more than 80% of the total revenue. The remaining part comes from selling products and services to entertainment content producers and distributors.

Licensing revenue can be split into following major chunks – PC market, broadcast market and consumer electronic market and other nascent markets like mobile, gaming and automotive market.

– PC market makes up around 35% mainly driven by the inclusion of Dolby’s technologies in media applications and operation systems. Microsoft is a major customer with almost 10% revenues coming from it. It is also a competitor to Dolby in one way. Dolby Digital and Dolby Digital Plus are the key technologies employed in this segment.

– Consumer electronic market is around 25% [mobile market is treated different from consumer electronics]. Dolby Digital and Dolby Digital Plus are mandatory audio standards for Blue-ray format, so Dolby’s technologies become part of every Blue-ray players. Earlier, it enjoyed the same privilege in DVD players.

– Broadcast market which is mainly about STBs and TVs constitutes around 25%. This segment has shown an exceptional growth benefiting from increased global shipments of set top boxes and digital televisions. Here again Dolby Digital, Dolby Digital Plus and HE-AAC are the major technologies minting money for Dolby.

– Mobile, Gaming, Automotive and Licensing services cover up the remaining pie of the total Licensing revenues. Mobile markets are primarily driven by AAC and HE-AAC technologies, whereas Gaming and Automotive are driven by Dolby Digital, ATRAC and Dolby TrueHD.

Besides licensing revenues, product sales consist of revenue from sales of equipment to cinema operators and broadcasters representing around 15% of total revenue.

Dolby’s current position in these markets offer a decent growth for next few years. The real upside can come from mobile market where it is trying to increase the scope of its technologies. With the increasing processing capabilities of Smartphones and Internet Tablets, there are lot more things that Dolby can do to improve consumer experience. So in short Dolby is well positioned to ride on the success of mobile devices.

Dolby has also introduces many new technologies like Dolby Volume, Dolby Mobile, Dolby Axon and dynamic range image technologies. These technologies will start adding to topline in coming years. In addition, increasing penetration of CE device is developing nations like India and China will increase Dolby’s prospects [Dolby’s licensing deals are based on number of devices sold by the system licensee].

Geographically, Dolby is well diversified as it enjoys more than 65% revenue outside US. The major competitors include companies like DTS, DivX, Fraunhofer Institute, RealNetworks, Sony, SRS Labs and Thomson. The major competitive advantages of Dolby are 1) its brand, 2) its technologies, 3) its close relationships with content producers and distributors and 4) its clout with the standard licensing bodies. Dolby has almost 1600 patents issued and 2000 are pending in multiple countries.

Here come the numbers. Dolby has grown 80% in last three years and maintained profit margins of more than 30% last year. It employs around 1000 employees and with around $720 million dollars revenue and $250 million profit, the productivity is quite high. By Sept, 2009, it had cash and cash equivalent of $450 million dollars. Return on equity is around 20%. The market cap of Dolby is around $7billion.

A company worth keeping a close watch.

Tata Elxsi – Is it just another software services company?

Tata Elxsi is software products and sevices company promoted by much renowned Tata group. It was created as a joint venture between Tata and Elxsi, a maker of mainframe computers and incorporated in 1989 as a hardware manufacturer of computer servers. Elxsi went bust in early 90’s as mainframes went out of fashion. Only the name remained after so many years.

Tata Elxsi has four product divisions – Product Design Services, Industrial Design Division, Visual Computing Labs and System Integration Services. However, it reports revenues as two segments – Software Development Services and System Integration Support & Services. It is not very clear as to which product division fall under what segment but seems that the first two product divisions are reported combined in Software Development Services while System Integration Services and Visual Computing Labs are reported with System Integration Support & Services. Software Development Services form major chunk of the total revenues. [already confused with so many similar sounding divisions/segments?]

Product Design Services division appears to be usual service company operation in software, hardware, systems, vlsi, basically whatever comes in the way. It claims to have domain and technology expertise in VLSI design, embedded software, networking, telecom, multimedia, storage, wireless and high-performance computing. This perhaps cover almost all the domains in electronics Industry. This division completes with lot of Indian companies operating in embedded and VLSI space vying for outsourcing pie from companies operating in electronics space. This division might be constituting more than 80% of the revenues.

Industrial Design Services is somewhat more interesting as it is different from other IT companies. This division provides complete product solutions to clients across multiple industries like FMCG, consumer electronics, transportation etc. This division has worked on many successful product designs including the Pureit water filter and Pond’s for Hindustan Unilever, Horlicks Junior and Women’s Horlicks for GlaxoSmithKline and styling intent and Class A surface development for car makers such as Jaguar, Land Rover and Nissan. As interesting it may sound, but we do not know how much money it really makes and contributes out of the total pie.

Nothing much to take note for System Integration Services where it competes with number of System Integrators (SIs) across the globe. Visual Communication Labs division is interesting with its hand behind special effects and animation in many Indian Movies.

With major chunk of revenues coming from Product Design Services division, the growth is tied to overall growth of embedded and IT industry. The strength lies in the brand name associated with Tata group. This can also bring in work from Tata group companies and companies enjoying close relations with Tata. There is also a possibility that it get merged with TCS, another Tata company and leading IT Services company. However, there has been no signal from any of the companies for this. There is no significant competitive advantage apart from being a Tata group company. Recently company has been showing very bullish signs and have taken the fancy of analysts. Appointing Mr. S Ramadorai, ex-TCS CEO as Chairman has added more fuel to the fire.

It needs to be seen how the company can diversify the business from Product Design Services to other three divisions. Company has already been investing heavily in VCL division. Results are yet to be seen. It would also be interesting if the company gets in product development or IP development in a big way. The space is very crowded and it will be difficult to make a mark but the upside is very high if it gets successful.

Coming to numbers, for year ending March 2010, Tata Elxsi reported revenue of Rs 3.88 billion down from the previous year (Rs 4.19 billion). Net profit was Rs 488 million versus Rs 581 million. Total capital employed was Rs 2.14 billion. That comes to 12.6% Net Profit Margin and 22.8% ROE. The dividend yield has been always good. The market cap had started seeing action 6 months back after being subdued for a long time. Perhaps the time of making obscene money on the stock is gone.

Disclaimer: I hold the stock. I bought it at very low price when it was grossly undervalued. I can sell it anytime I need money or find another opportunity or just feel like doing so.

Apple – Is it the peak?

Apple has touched the market cap of $250 billion. At this stock price, it is only second to Exxon Mobil Corporation across all Industries and first in technology even leaving behind Microsoft. Take any two companies of the following set – HP, Intel, Cisco and Oracle – and the sum of market cap is less than that on Apple. In last one year, the stock price has risen by almost 100%. Investors are upbeat about the future prospects.

There are reasons for being bullish. The phenomenal success of multiple products one after another, a cult-like customer following, multi-million worth of free marketing, iconic status in commoditized consumer electronics Industry and charisma of Steve Jobs – multiple set of conditions existing all together! iPod broke all the records and killed all other alternatives. iPhone broke iPod’s record by selling 1 million devices in just 74 days. iPod took two years to achieve this. Then comes iPad and it takes only half the time what iPhone took. And not to forget the phenomenal success of iTunes and App Store. Macs and Macbooks are also doing fine.

However, it is always difficult to maintain this position. Lot of things can go wrong. What if iPad sales do not keep up this momentum? Android phones are closing in [NPD already claims more Android phones being sold than iPhones in the last quarter]. Steve Jobs is going to retire some day. People will get bored of talking about Apple some day and hence goes free publicity. Competitors, are making products which are almost as good as Apple’s and in some instances at half the prices. In addition, technology Industry is always fraught with sudden changes which can shake the entire ecosystem.

Let us visit some numbers.
Sales ending year 2009 – ~$43 billion.
PAT year ending 2009 – ~$8.2 billion
Total equity year ending 2009 – $31.6 billion
Total market cap (as of today) – ~$250 billion

Rewind back by ten years to year 2000 and check the numbers from Cisco and Microsoft
(source: Wikipedia)

Microsoft’s market cap – ~$586 billion
Cisco’s market cap – ~$350 billion

Let us first discuss Microsoft. Microsoft reported revenue of $22.96 billion for the fiscal ending June 30,2000 with net income of $9.42 billion. Windows 2000 was a hot cake. Microsoft had had line of successful releases and enjoyed monopoly in operating systems (it still does). PC growth rate was terrific which was benefiting both Microsoft and Intel. Microsoft also unveiled .NET platform eying the applications market. MSN network of Internet services was the Internet’s largest network. Analysts were bullish about Microsoft. Nothing could have gone wrong (with Microsoft and the whole Technology Industry).

Coming to Cisco, the darling of Wall Street, was in an even faster lane with a sparkling decade behind it. It acquired numerous companies. One startup company was valued at $7billion in 1999. It recorded revenue of ~$19 billion in year 2000 with an income of #2.67 billion. According to letters to shareholders for year 2000, It held leadership position in 16 of the 17 key markets. An equity analyst noted – “But they [Intel and Microsoft] are in a much more moderate growth phase. The more rapid growth is to interconnect all those computers, and Cisco is the standard bearer for all that interconnection.” People were expecting [dreaming] that Cisco will achieve market cap of $1 trillion.

Coming back to 2010. Both Microsoft and Cisco are alive and leaders, albeit at lower market cap even after 10 years. Relatively Microsoft did better than Cisco perhaps because Cisco’s case was more optimistic in 2000.

Today we see the similar optimism for Apple. What would be the market cap of Apple in year 2020?

Disclaimer: I am a fan of Apple. I own an iPod, an iPhone and a Macbook. But I really dont care if Apple’s share fall 90% from the current level. I do not own the stock.